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Five Ways to Tell if a Charity is Legitimate
If you are like the rest of us, you probably see a lot of opportunities these days to give back to your community and help out all around the world. There are literally thousands of registered charities supporting worthwhile causes throughout the United States every day. While you might recognize the names of some of these groups, there may be a number of them that you have never heard of. Unfortunately, some of these that you may be encountering are fake charities making fraudulent requests. According to FTC Consumer Sentinel Network statistics, there were over 4,600 reports of charitable solicitation fraud in 2020. So, how can you tell if a charity is legitimate or if it does what it says that it does?
First, it’s important to understand that charity fraud can take many different forms. Fake charities are one of the worst examples of this. Some simply don’t exist. Others exist on paper, but all of their funds go to the scammer’s pockets. Some charity fraud is committed by insiders to legitimate organizations, for example, if a charity employee decides to steal donation money for personal purposes. Other scams include impersonating legitimate charities by creating charity names that sound similar to well-known organizations but are spelled slightly differently. Additionally, some groups claim to be raising money for charity but fail to support any charitable causes or spend large portions of their donations on overhead and expenses. If you conduct a quick search of “charity fraud” in the news section of your Internet browser, you may be disheartened by how often this kind of activity occurs. It is important to be vigilant when you decide to donate to a cause so that you don’t accidentally give money to scammers. Here are some simple ways that you can differentiate between legitimate charities that live up to their missions and fake ones that you should avoid:
1) Legitimate Charities have Employer Identification Numbers (EINs).
These are also known as Tax-ID numbers. Having an EIN doesn’t mean that an organization is tax-exempt or that your donation is tax-deductible. But, it lets you know that the IRS knows who they are. In order to get an EIN, an organization must provide its contact information as well as the applicant’s name and phone number. If something goes wrong with a donation, this will provide one option for contacting the charity. According to the IRS “Dirty Dozen” scam list for 2020, legitimate charities should provide an EIN upon request.
No EIN = Not legitimate!
2) Charities must register annually with the IRS and applicable state governments.
Failure to register means that a charity is unable or unwilling to provide additional information about its activities. This lack of transparency should serve as a warning sign. Plus, it is likely that your donations to them won’t be tax deductible if they are not registered with the IRS! If you’re wondering about a charity’s status, the IRS has a Tax-Exempt Organization Search tool that lets you search for an individual organization by its EIN to see if it is registered (Tax Exempt Organization Search (irs.gov)). Many charities list their EIN on their websites, or you can ask for it directly from the organization that asked you to donate. Charities that fail to register with the IRS each year have their tax-exempt status automatically revoked after a period of time.
In addition to the IRS, charities are required to register with around 40 state governments on an annual basis, depending on the kind of charitable work they are engaged in and where they plan on fundraising. For example, a charity located in any state around the country would need to register with the State of California, if it planned on accepting donations from a California resident. State registration is a completely separate process from applying for tax-exempt status from the IRS. Some charities are unaware of the requirement to register with state governments. Labyrinth, Inc. has worked with numerous charitable organizations who were unaware of this requirement to get them in compliance with federal and state registration requirements.
Bottom line – If a charity isn’t registered with the IRS or state government, you should donate elsewhere!
3) Legitimate charities should have a way of donating to them that is NOT exclusively by cash, gift card, or wire transfer.
While donations of cash or gift cards can be very helpful to nonprofits as they try to assist community members in need, charities should also have ways to accept other forms of payment. If they don’t, this is a huge warning sign of a possible scam. Cash, gift card, and wire transfers are all ways that criminals can get funding with little accountability because they are hard to track. The FBI cautions that this can also happen in the cases of natural disaster scams. Legitimate charities will have other options to donate such as paying by check or by credit card. If you do choose to write a check or use a credit card, it is a lot easier to ensure that your money went to the correct charity.
Scam Watch also cautions that if you do use a check, make sure that it is addressed to the organization and not a specific individual.
4) Charities must be able to provide tax receipts for donations.
While you may or may not choose to get a receipt, having the option to get a receipt lets you know if you should even consider donating to the charity. If the individual or charity is willing to accept your donation but does not provide a professional looking receipt, this indicates that the organization may not be transparent about how it uses your funds. It may just be a scammer trying to pocket some extra money. If an individual claims that he/she can’t give you a receipt, consider donating directly to the charity if it can give you one. Just because an individual says that they are fundraising for a specific organization or cause doesn’t mean that they are doing so. Donation receipts should have specific, detailed information about the charity that you are donating to including the name and address of the organization. The receipt should also say how much you donated or a description of what you donated if you donated goods. Without a receipt, it is very difficult to deduct your donations from your taxes. If the charity is unwilling to provide a receipt, you should be suspicious! Additionally, receiving a receipt for your donations is not a sure-fire way to guarantee that your money will be spent to support worthy causes.
Failure to provide a detailed receipt is a red flag that the charity might not be legitimate.
5) Legitimate charities should tell you what donations will be used for.
The FTC strongly recommends checking with organizations such as the BBB Wise Giving Alliance, Charity Navigator, CharityWatch, or GuideStar which will help you get a better picture of how much of the charity’s donations go towards expenses and overhead. A recent blog post by the FTC highlights a scenario where a bogus charity joined with a fake fundraiser. In this instance, the fundraiser kept a large percentage of the donations and the charities involved used most of the remaining donations on non-charitable expenses. Additionally, the FTC recommends being mindful that a portion of your donation may be used to pay the expenses of an online giving portal such as when you participate in crowd funding. The online portal may also delay payment of your donation to the organization.
Beware of organizations that:
1) Try to rush you to make a donation. It’s okay to take a moment to evaluate the request. You may wish to ask the organization for more information about their programs or services before giving. Pressure to donate money, particularly cash, is a huge warning sign because you don’t know how they are going to use the funds!
2) Use most of the money as overhead. Clearly, legitimate charities are going to have some expenses to operate. Charity Navigator cautions that charities that spend less than a third of their budget on the services that they are supposed to provide are not “living up to their missions”. These kinds of charities receive 0 stars for their Financial Health from Charity Navigator. Most legitimate nonprofits do use the majority of the budget to help their causes. It is important to do your research on whatever charities you want to donate to in order to make sure that their funds are being spent wisely.
3) Sound very similar to another charity’s name. Scammers can take advantage of name recognition by well-known organizations to try to get a donation. Be sure to check the website address for the charity to make sure it is the one that you want to donate to.
4) Formed shortly after recent disasters. The federal government even has a dedicated section that specializes in disaster fraud, called the National Center for Disaster Fraud, led by the Department of Justice. Disaster fraud has included numerous schemes to take advantage of COVID-19 relief programs as well as other individuals affected by hardships after natural disasters throughout the United States. For consumers, scammers can use natural disasters to their advantage with fake home insurance or home warranty information. Fake charities may even pretend to ask for donations to help with disaster relief even though these donations never end up assisting the victims.
Here are three easy ways to keep yourself from being a victim:
1) Check a database such as the IRS website, BBB Wise Giving Alliance, or Charity Navigator, or another reputable source to get more information on the charity. It’s important to donate to programs or services that will give back to the community and the world. Scammers have enough money! They don’t need yours too.
2) Pay by check or with a credit card whenever possible. This will give you the peace of mind that your money will go where you intended it to go.
3) Make sure you didn’t sign up for a recurring payment if you didn’t want one. Read the fine print on your online donation to make sure that it is a one-time payment unless you agreed to more. This problem can happen with regular charity donations as well. It is also important to check your bank or credit card statement regularly to make sure that you didn’t give more than the total amount of money you planned on donating.
If you do know someone who has been a victim of charitable solicitation fraud, there are a number of resources available to them. First, they can contact their state consumer protection office (State Consumer Protection Offices | USAGov). They can also report fraud to the FBI (Internet Crime Complaint Center(IC3) | Home Page) or to the FTC (ReportFraud.ftc.gov). Finally, natural disaster fraud can be reported to the National Center for Disaster Fraud (How To Report Disaster-Related Fraud (justice.gov)).
About us: Labyrinth, Inc. has over 30 years of experience in charitable state registrations from starting a brand-new non-profit to working with some of the largest charitable organizations in the United States. Our dedicated State Registration Specialists are familiar with state and federal requirements for soliciting donations in your area and stay up to date on each state’s registration forms so you can focus on your mission. We also work with commercial co-venturers, fundraisers, management companies, and solicitors. If you or your organization needs help getting registered with the IRS or any state government, contact us today to get the process started.
Written By Christina Urich